Feb. 5 (Bloomberg) -- Japan’s policies that weakened the
yen will boost Thailand’s baht, unlike the currencies of South
Korea and Taiwan, as the Detroit of Asia benefits from cheaper
car parts and engines from the world’s third-largest economy.

Thailand, a hub for Japanese carmakers including Toyota
Motor Corp. and Nissan Motor Co., bought 54 percent of auto
components from Japan in 2012, official data show. Importers are
“too pleased with the situation,” Thai Finance Minister
Kittiratt Na-Ranong said Jan. 24, after Japanese Prime Minister
Shinzo Abe’s push for “bold monetary easing” to revive the
economy sent the yen to a 2 1/2-year low against the dollar.

“The baht will certainly benefit if we see stronger export
performance in the first quarter of the year on a revival in
demand for Japanese products,” Jun Trinidad, a Manila-based
Citigroup Inc. economist, said in a Jan. 30 telephone interview.

The baht strengthened 2.8 percent versus the greenback this
year, the best performance among 11 most-traded Asian
currencies, on optimism Thailand’s economy is recovering from
the nation’s worst floods in almost seven decades. The yen’s 6.8
percent slide prompted declines of 2 percent and 1.7 percent in
the won and Taiwan dollar as companies such as Toyota and Sony
Corp. compete against South Korea’s Samsung Electronics Co. and
Hyundai Motor Co., as well as Taiwan’s HTC Corp.

“When the yen depreciates, there is a tendency for the
market to take the view that the Taiwan dollar or the South
Korean won will have to move in line,” Trinidad said.
“Thailand is a special case because much of the Japanese
production for mass-assembly type of vehicles is in this
Southeast Asian nation.”

‘Currency War’

A global “currency war” seems to be breaking out as
monetary easing in Japan drags the yen lower, Ha Sung Keun, a
Bank of Korea board member, said Jan. 28. Taiwan’s policy makers
said Jan. 29 they will step into the foreign-exchange market as
the island’s dollar rose 5 percent against the yen this year.
The Japanese government will spend 10.3 trillion yen ($112
billion) to drive a recovery.

In Thailand, which calls itself the “Detroit of Asia” and
where Japanese companies such as Canon Inc. and Honda Motor Co.
are the biggest foreign investors, the central bank should avoid
fighting market forces to stem currency gains, Finance Minister
Kittiratt said in an interview last month.

Japanese companies accounted for 64 percent, or 348 billion
baht ($11.7 billion), of the projects approved by the Thai Board
of Investment in 2012, according to the Japan External Trade
Organization, or Jetro. That compares with 159 billion baht of
in 2011, or a 57 percent share among foreign companies.

The baht, which has appreciated 9.4 percent against the
Japanese currency this year, dropped 0.6 percent today to 3.1015
yen as of 10:07 a.m. in Bangkok, according to data compiled by
Bloomberg.

Labor Costs

“We’ve not heard any complaints about the exchange rate
from Japanese companies in Thailand,” Yoichi Yajima,
representative of the business support center in Thailand at
Jetro, said in a Jan. 30 interview. “A stronger baht also helps
to contain inflation, and that will help limit the costs for
companies amid rising labor costs.”

Prime Minister Yingluck Shinawatra’s government raised
minimum wages throughout the country in January, adding to
stimulus measures to boost domestic demand and reduce reliance
on exports for growth. The Bank of Thailand raised its 2013
growth forecast on Jan. 18 to 4.9 percent from an October
prediction of 4.6 percent, while maintaining its projection for
export to increase 9 percent.

Exporters Hurt

“The yen’s weakness comes at a good time because if
machinery imports are cheaper when wages are going up, that
could balance things up for Thailand,” Nalin Chutchotitham, a
Bangkok-based analyst at Kasikornbank Pcl, said in an interview
on Jan. 29. Thailand’s fourth-largest bank by assets expects the
baht to advance to 29 against the greenback by the end of this
year on capital inflows, she said. That’s stronger than the 29.6
per dollar median estimate of 26 analysts in a Bloomberg survey
and 29.76 today.

The baht’s gain to a 17-month high in January makes it
expensive and will hurt exporters such as rice producers,
according to Ng Kheng Siang, head of Asia-Pacific fixed income
in Singapore at State Street Global Advisors. It has risen 6.1
percent in the past six months versus the dollar, the best
performance in Asia. Export growth slowed to 14 percent in
December from 27 percent the previous month, a central bank
report showed Jan. 31.

“Looking at the Thai baht, valuation wise, it could be on
the rich side, and there could be some short-term correction,”
Ng at the asset management unit of State Street, which has $24.4
trillion in assets under custody, said in a Jan. 29 interview.
Ng said he may “underweight” the baht, meaning he may hold it
less than the benchmark index he follows.

Earnings Boost

The falling yen will probably help to boost earnings of
Japanese companies, allowing them to allocate more funds to
expand overseas operations, according to Koji Fukaya, president
of currency research and consulting company Office Fukaya in
Tokyo and a former chief foreign-exchange strategist at Credit
Suisse Group AG.

“That’s good for the Thai economy and business
activities,” Fukaya said in a Jan. 29 interview.

Akio Toyoda, President of Toyota, Asia’s largest carmaker,
said last month that automakers are regaining optimism and
“beginning to see the light” with the yen. Canon, the world’s
largest camera maker, forecast on Jan. 30 that profit will rise
14 percent this year amid the yen’s slide.

Japan’s shipments to Thailand increased 17 percent to 3.49
trillion yen in 2012, the biggest increase among Asian nations,
while exports to the region as a whole declined 5 percent,
official data show.

“The depreciation of the yen definitely is a drag on the
ability of other Asian currencies to appreciate,” Ramin Toloui,
global co-head of emerging markets portfolio management at
Pacific Investment Management Co., which oversees the world’s
largest bond fund, said in a Jan. 30 interview in Singapore.
“Certain countries that are part of the production chains into
Japan may be in a more beneficial position than countries that
are direct competitors.”